world of private clients 2020

NEWVALUES, LEGACY AND RISK FAMILY & GENERATIONAL WEALTH

GRAPHIC 8:

Climate change and the environment, where the visible impact is clearer to see, have been joined by a renewed interest in governance issues, for instance in the wake of multinational fast-fashion retailers being found to fall short of ethical standards around working practices despite having positive ESG ratings. Such instances of potential inconsistency have prompted initiatives to define disclosure standards (such as the Task Force on Climate Related Financial Disclosures). The surge in popularity of green finance has also led to the International Organisation of Securities Commissions formulating a framework to harmonise rules and guidance on disclosing sustainability risks. ESG as a focus area is here to stay. However, our data shows that scepticism remains among private clients, with 56% agreeing that ESG- related action matches rhetoric, while 44% believe a gap remains (Graphic 8). The forward trajectory, though, is undeniable, as evidenced by providers continuing to launch and refine ESG funds. “It takes a great deal of effort and money to launch new funds,” says one banking executive. “Firms don’t do it for a laugh or because it’s a passing trend.”

Investor appetite may initially have been driven by next generation attitudes, but there is a growing realisation that this is not only a beneficial way of investing for ‘good’, but also a sensible part of portfolio diversification. “There’s a place in any portfolio for sustainable and responsible investing,” says a corporate administration and family office solutions specialist. Beyond diversification, investment performance is also an attracting force. “Many are willing to see a sacrifice in financials for perceived social return,” says a social impact adviser. But as the market for impact and social investment grows, returns “are at or near market levels”. As education around this area improves, the movement towards a values-driven existence, where social and financial return are linked to the same set of values, will continue apace. As risk and reward become clearer – and performance is better tested over time – investors will not be able to ignore the opportunity. “It’s a great investment option when you look at long-term performance, and does some good at the same time; that’s a pretty compelling proposition,” says one investment management professional.

EXPECTED, OR EXCEPTIONAL? QUESTIONS LINGER OVER ESG AND IMPACT With wealth inequality now a routine part of public discourse amid economic, health and social crises, the question of whether there is an onus on the wealthy to ‘do good’ in the world is a common one. Philanthropy has been the primary vehicle for achieving this, but there is increasingly a view that social impact should be more directly tied to wealth creation and preservation itself. Social impact comes in many forms, and the private client community is well-placed to deliver maximum impact, given the resources at its disposal and its dominance of investment markets. Rocket-boosters have been placed behind the ESG movement, with one wealth management professional noting that ESG offers are now a staple part of the investment landscape, rather than a “small tributary off the main river”. “It’s like going to a restaurant these days and seeing vegan options appearing on menus where you wouldn’t expect to see them.”

TOWHAT EXTENT IS RHETORIC AROUND THE IMPORTANCE OF ETHICAL INVESTING TYPICALLY MATCHED BY CONCRETE ACTION AND INVESTMENT? PLEASE CHOOSE ONE ANSWER.

50%

41%

very much so

moderately

not particularly / no different to previously

not at all

WORLD OF PRIVATE CLIENTS | NOVEMBER 2020 18

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